Home loan vs loan against property: which is right for you?

A home loan funds the purchase or construction of a house. A loan against property (LAP) borrows against a house you already own, and the money can be used for almost anything. Because both are property-backed, people often treat them as interchangeable — they are not.

The key differences

• Purpose — home loans must be used for the property being financed; LAP proceeds are flexible.
• Rate — home loans are cheaper, typically starting about 0.75 – 1.5 percentage points below LAP rates.
• Amount — LAP often sanctions more, because you can leverage a high-value existing property.
• Tenure — home loans run up to 30 years; LAP usually caps at 15 – 20 years.
• Tax — home loan interest can be deductible under the old regime's Section 24(b) for a self-occupied property; LAP interest is deductible only if the money is traced into the house or business it funded.

Choose a home loan when

• You are buying, building or renovating a house to live in or let out.
• You want the lowest possible rate and the longest tenure.
• You can claim the interest deduction and want the tax benefit.

Choose LAP when

• You need a large amount for business, education or debt consolidation.
• You own a property and want to raise money without selling it.
• Your income profile suits a longer, EMI-based repayment of a big-ticket need.

One practical note: if you are consolidating credit-card or personal-loan debt into a LAP, the interest saving is real — but you are converting unsecured debt into debt secured by your home. Keep the discipline that got you into trouble out of the picture.